BILL ANALYSIS Ó SB 1476 Page 1 SENATE THIRD READING SB 1476 (Committee on Governance and Finance) As Amended June 16, 2016 Majority vote SENATE VOTE: 37-0 ------------------------------------------------------------------ |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+----------------------+--------------------| |Revenue & |9-0 |Ridley-Thomas, | | |Taxation | |Brough, Dababneh, | | | | |Gipson, Mullin, | | | | |O'Donnell, Patterson, | | | | |Quirk, Wagner | | | | | | | | | | | | ------------------------------------------------------------------ SUMMARY: Establishes general requirements for all new or extended voluntary tax contribution funds (VCFs). Specifically, this bill: 1)Requires the words "voluntary tax contribution" to be included as part of the name of the fund. SB 1476 Page 2 2)Requires the administering agency's Internet Web site to report the process for awarding money, the amount of money spent on administration, and an itemization of how program funds were awarded by the agency, including information regarding recipients of funds. 3)Defines an "administering agency" as the state agency or other governmental entity, other than the Franchise Tax Board (FTB) and the State Controller, to which funds are allocated to accomplish the purposes of the voluntary tax contribution designation. 4)Provides, unless otherwise specified, for each VCF's automatic sunset on January 1 of the seventh calendar year following the VCF's first appearance on the personal income tax (PIT) return. 5)Requires each VCF to meet a minimum contribution threshold of $250,000 each calendar year to remain on the PIT return. 6)Requires contributions made to each VCF to be continuously appropriated to the administering agency to be spent, as specified. 7)Specifies that these requirements only apply to new or extended VCFs that take effect on or after January 2, 2017. EXISTING LAW: 1)Allows taxpayers to contribute amounts in excess of their PIT SB 1476 Page 3 liability to one or more of 19 VCFs on the 2015 PIT return. 2)Provides a specific sunset date for each VCF, except for the California Seniors Special Fund and the State Parks Protection Fund. 3)Requires each VCF to meet an annual minimum contribution amount to remain in effect, adjusted annually for inflation based on the percentage change in the California Consumer Price Index, except for the California Firefighters' Memorial Fund, the California Peace Officer Memorial Foundation Fund, and the California Seniors Special Fund. 4)Provides that upon repeal of a VCF, any contribution designated on a timely filed original return for the taxable year immediately preceding the date of repeal shall continue be transferred and disbursed, as specified. 5)Specifies how contributions shall be allocated in the event that no designee fund is specified, or if an individual designates a contribution to more than one fund and the amount available is insufficient to satisfy the total amount designated. 6)Specifies the order by which new contingent VCFs are eligible to be added to the PIT return. FISCAL EFFECT: None COMMENTS: SB 1476 Page 4 1)Life Cycle of a VCF: On December 9, 2015, the Senate Committee on Governance and Finance held an oversight hearing on VCF programs. The hearing outlined the process by which a taxpayer's voluntary contribution on his or her PIT return is eventually allocated to the designated charitable fund. The current process starts with legislation enacting a VCF to be established on the PIT return. Next, a taxpayer contributes to an established VCF on the PIT return. The contribution is collected by the FTB and distributed to the State Controller by June 15th each year (contributions made after June are not distributed to the State Controller until the following year). The State Controller then distributes the money according to the enacting legislation, which generally requires an appropriation by the Legislature. As a result, the administering agency generally must submit a budget change proposal (BCP) to the Department of Finance (DOF). Once the DOF approves the BCP, the appropriation is placed into a bill to be approved by the Legislature. The State Controller can only transfer money in the fund to the administering agency to effectuate its charitable purpose after the Governor signs the appropriations bill. Overall, years may pass before a charitable donation made to a VCF is put toward its intended use. When a VCF's its automatic sunset date is not renewed or fails to meet its minimum contribution threshold, the VCF is removed from the PIT return. However, any contribution designated on a timely filed original return for the taxable year immediately preceding the date of repeal must continue to be transferred and disbursed in accordance with the legislation that enacted the VCF. In other words, the balance of the VCF should eventually reach zero as any remaining moneys in the fund are allocated to the intended recipient. After four years of inactivity, all governmental funds, including VCFs, are slated for abolishment by the DOF, with any unspent money in the fund reverting to the General Fund. The DOF must first send the Joint Legislative Budget Committee (JLBC) a letter detailing all funds to be abolished, giving JLBC the SB 1476 Page 5 opportunity to object to any funds' abolishment. However, the letter does not specify the type of fund being abolished and only lists the name of the funds. Thus, it is often unclear whether the fund proposed for abolishment is a general government fund or a privately funded VCF with remaining disbursements intended for a specific non-governmental charitable purpose. 2)Continuous Appropriation: Current practice generally requires a specific appropriation by the Legislature to allocate money from a VCF to the FTB and the State Controller for reimbursement of costs associated with administering the VCF, with the balance allocated to the administering agency. To streamline the process by which taxpayers' voluntary contributions are put toward their charitable purpose, this bill provides that a continuous appropriation shall be made from all prospective VCFs to the applicable administering agency in accordance with the legislation that enacted the VCF. Money allocated to the FTB and the State Controller will still be subject to a specific appropriation by the Legislature. According to the author, a continuous appropriation to administering agencies will result in speedier allocation of money for ongoing VCFs, and help ensure that any remaining money in the fund upon repeal of a VCF will still be disbursed as required to achieve its intended charitable purpose. In an attempt to maintain checks and balances on continuously appropriated VCFs, this bill creates new online reporting requirements for administering agencies so the public can easily discern how the money is awarded and spent, including how much money is first absorbed by the administering agency on operating costs. This bill also aims to prevent VCF money from reverting to the General Fund by requiring the words "voluntary tax contribution" in the name of the fund so the JLBC is clearly notified when a VCF is slated for abolishment and can take measures to redirect the money towards its SB 1476 Page 6 intended charitable purpose, if desired. 3)Committee Policy on VCFs: The number of VCF "checkoffs" on the PIT return has grown dramatically in recent years, prompting the Assembly Committee on Revenue and Taxation (Committee) to adopt specific rules regarding VCF legislation. The policy requires all new checkoffs and existing checkoffs seeking reauthorization to have sunset dates and meet a $250,000 minimum contribution threshold adjusted for inflation in subsequent years, among other provisions. This bill provides that all prospective VCFs have a seven-year sunset date, two years longer than current practice generally granting VCFs a five-year sunset date. This bill also provides that all prospective VCFs meet a minimum contribution threshold of $250,000 and does not require the threshold to be adjusted yearly for inflation, deviating from current practice and the Committee's policy. According to the author, these changes are intended to ease administrative burdens on long-standing VCFs by reducing the burden on non-profits that must otherwise seek new legislation every five years, and leveling ever-increasing minimum contribution amounts successful VCFs must meet to stay on the PIT return. While there are countless worthy causes that would benefit from the inclusion of a VCF on the PIT return, space on the return is limited. Thus, it could be argued that the current system for adding VCFs to the form is subjective and essentially rewards organizations that can convince the Legislature to include their fund on the form. To the extent that VCFs are able to remain on the PIT return for a longer period of time, it may come at the expense of other charitable causes seeking the same opportunity. Analysis Prepared by: SB 1476 Page 7 Irene Ho / REV. & TAX. / (916) 319-2098 FN: 0003478